Search form

The Myth of South African Capitalism

In a Mail & Guardian article entitled “The
Iron Fist And The Velvet Glove,” Salim Vally attributed the lack of
robust economic performance and apparent growing poverty in South
Africa to the free market, or as he calls it, “capitalism.” But
those familiar with South Africa’s economy know that it is a far
cry from a laissez-faire, capitalist marketplace. Vally quotes
approvingly from An Ordinary Country, a book by Neville
Alexander, in which the latter wrote, the “apartheid-capitalist
system has simply given way to the post-apartheid-capitalist
system.” Having lived in South Africa for a decade, I know that
Vally’s sentiments are not unique and that many South Africans
share his negative view of the free market.

The South African political scene reflects the above views, and
the parties of the far left are successful in portraying the
African National Congress as a sell-out to some sort of conspiracy
of international capitalists. Not surprisingly, Vally’s article is
filled with allusions to an unholy alliance between the ANC and
international capitalism.

It is not my intention to defend the ANC. But it is wrong to
assume that the far left can provide an answer to South Africa’s
problems by opposing privatization, advocating more government and
wishing to isolate South Africa from globalization. Contrary to the
common myth, capitalism is not an enemy of the poor. Likewise,
there is no capitalist conspiracy against the poor countries of the
world. The world trading system is imperfect and scarred by
protectionism in developed and under-developed states alike. But
despite those imperfections, many poor countries have managed to
achieve remarkable prosperity. In 1967, per-capita income in South
Korea was an inflation-adjusted $550. In Ghana it was $800. By
1997, South Korean per capita income reached $10,360. In Ghana it
had fallen to $370. Other formerly poor countries such as Taiwan,
Singapore, and Hong Kong are today enjoying much higher standards
of living.

What ties all of those countries together? They all have
burgeoning free market economies. South Korea, for instance,
undertook far-reaching economic reforms, lowered its import tariffs
and opened up to the world. Likewise, Botswana, which has the
freest economy on the African continent, enjoyed an average
economic growth of 7 percent over the last two decades. Clearly,
free market and minimal state intervention are the necessary
prerequisites for the underdeveloped countries to prosper.

But a free market economy is exactly what South Africa does not
have. With the exception of the agricultural sector, the ANC has
not substantially improved on the interventionist record of the
apartheid government. Restrictive labor laws and state enterprises
abound. Vally is thus correct to talk about the legacy of
apartheid. But he is incorrect in defining what that legacy is.

The legacy of apartheid in South Africa is a high degree of
central control over the economy and collusion between the
government and big business. The economic system under apartheid
was not capitalism, but “statism.” The government incentives
favored companies perceived as crucial to alleviating the negative
effects of sanctions. Many of South Africa’s largest enterprises
were thus run less for the benefit of the shareholders and more for
the benefit of the apartheid regime.

Today, like in the past, the power of the government to help and
to hurt South African business remains largely unchanged.
Businessmen vie with each other for government favors because they
know that the government can help them or destroy them, dependent
upon what it does with regard to taxation, affirmative action and
labor regulation. The problem, therefore, is not too little
government, but too much. With every new license, the government
creates an official who can distribute it in a corrupt and
arbitrary way. With every new regulation it creates an official who
can be bribed into granting exceptions to it. Let the government
get out of running the economy and the corruption, which Vally
rightly complains about, will decrease.

The collusion between the government and big business can only
be avoided if and when the actions of the government become neutral
to the fortunes of individual companies. The separation between
political and economic spheres is at the root of the success of the
developed countries. The greatest danger to South Africa’s future
development does not rest in the excesses of capitalism. To the
contrary, it rests in growing government intervention, which is
sadly what Vally advocates.